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Weak Comps Continue at Regis

Regis Corporation (RGS - Free Report) recently gave an update on the sales and same-store sales (comps) figures for its upcoming fourth quarter. The company reported fourth quarter 2012 revenues of $568.0 million, down 4.0% year over year and 1.0% sequentially.

Same-store sales (comps) for the fourth quarter fell 3.0% year over year. The rate of decline was steeper than the year-ago drop of 1.7% but lower than the previous quarter’s decrease of 3.4%, indicating a persistent deterioration in the company’s same-store sales. Service same-store sales fell 3.7% versus a decline of 1.7% in the prior-year quarter.

Retail same-store sales fell 0.5% against versus a decline of 1.1% in the fourth quarter of 2011, implying that the company is slowly improving in driving traffic. However, consolidated hair restoration business remained a bright spot with same-store sales growth of 4.4% in the quarter versus 1.3% in the prior-year quarter.

Geographically, North America has been a better performer than the international market. Domestic same-store sales fell 3.3% year over year, while international same-store sales fell even deeper by 6.6%. The international trend was assuring as it showed a huge improvement over the last quarter’s decline of 10.6%.

While the company’s relatively higher-priced, mall-based Regis Salon division was challenged, value salon concepts were relatively better positioned owing to the price sensitivity of consumers in the backdrop of economic uncertainty. The anemic economy is making customers pull back their expenses on expensive and discretionary items.

Comps at Supercuts (located in strip centers; around $17 average ticket) improved slightly year over year, while MasterCuts (around $22 average ticket), SmartStyle salons (around $21 average ticket), which are located exclusively in Wal-Mart Supercenters and the higher-end Regis salons (about 87% located in malls; around $42 average ticket) posted decreases of 3.5%, 4.6% and 5.1%, respectively.

Outlook

Regis, which owns, franchises or has stakes in more than 12,800 salons, hair restoration centers and cosmetology education services, is taking initiatives to turn its business around. During the quarter, this Edina-based company deployed several strategies to augment customers’ salon experience. The initiative includes repositioning of business into four separate consumer segments and efficient allocation of human resources. With so many initiatives in place, management set a same-store sales improvement target for 2013.

However, all these efforts will take sometime to fully materialize. At the current level, Regis continues to struggle with its comps and sales. On other hand, frequent changes in top management remain a cause of concern for the company.

Regis which competes with the likes of Ulta Salon, Cosmetics & Fragrance Inc. (ULTA - Free Report) currently retains a Zacks #3 Rank that translates into a short-term Hold rating. We are maintaining a long-term Neutral recommendation on the stock.

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